HSBC services PMI improves in April 2014

HSBC says RBI will have to continue its staring contest with inflation and make sure that it doesn't blink

HSBC's services sector PMI improved in April, but the reading for both activity and new business flows remained below 50. The weak growth backdrop is the result of the lingering structural constraints, which may only be lifted very gradually after the elections. Inflation picked up with both input price and prices charged rising at a faster pace. Inflation risks, including from the probability of an adverse food supply impact from the El Nino, is likely to keep the RBI in a hawkish mode.

Business activity (48.5 vs. 47.5 in March) and new business flows (48.4 vs. 47.6 in March) continued to contract in April, albeit more slowly.

Meanwhile, business expectations (65.8 vs. 66.0 in March) eased slightly.

The composite output index for services and manufacturing (49.5 vs. 48.9 in March) improved.

Outstanding business (52.1 vs. 52.2 in March) growth was broadly unchanged and employment (49.8 vs. 51.2 in March) dipped below 50.

Inflation rose with both input prices (53.9 vs. 53.2 in March) and prices charged (52.6 vs. 51.2 in March) accelerating. Surveyed companies indicated that fuel, food, packaging materials and paper costs had all risen.

Leif Lybecker Eskesen, Chief Economist for India & ASEAN, HSBC, said, "Despite the slight uptick in April, the PMIs indicate continued softness in services activity. Moreover, price pressures have increased. Coupled with inflation risks on the horizon, the RBI will have to continue its staring contest with inflation and make sure that it doesn't blink."

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